CSL Finance Limited - Transition To NBFC

(Yatharth) #61

Super Investors like Gautam Baid saying that it is equivalent/better than HDFC Bank. Have they ever studied HDFC Bank and found similarities? Does not cut ice with the facts. Will read the write up though.

(Yatharth) #62

A NBFC company increasing profit by such a minuscule amount YoY, is not worth my time. But seriously ashamed of marque investors trying to pull a fast one.

(Dhruv Saraf) #63

you need to understand that this company was purely a trading business earlier. theyve now taken all of that equity and deployed it into the lending business. hence results of the previous years arent comparable to those of the present. Q3 of fy’18 will be the first quarter when you will be able to compare results on a like to like basis

Disc - invested

(yudiagg) #64

How can one ever invest in a company with a top line of only 9.2 Cr. in a
qtr. NPM of about 50% in too high /good to believe. They appear to be
misusing the the Parekh name. Bull markets generate such companies which
vanish very swiftly later.

(ravish) #65

Because there was not any significant debt on them and they were this from the money company already had so u can understand why the NPM are so high here. One more thing that they have only 200 crore loan book so income generated from it would be this much only. Here also we should see that it is in lending business not a manufacturer so the topline is the interest it earned on its loan and bottomline would be minus all operating expense.

(kkarna) #66

Hello Senior Investors, this will be my first post post on the forum, so please pardon me if something’s wrong.
I have a few Questions?
1 - The growth looks completely operator driven to me. The stock had quadrupled in less than a year. Does it call for heavy corrections?
2- Can CSL continue to make such margins in the long term, I am assuming the debt will only increase from here.
3- What is the loan pricing as compared to other NBFCs?

Thank you. I am only a beginner here, in the learning phase only.

(Gaurav152) #67

Hi Kkarna

Debt is a raw material for a finance company. so it is bound to increase. The loan pricing has improved significantly for them i remember last year they took a loan from Kotak at 16% and with better profitability and renowned investor introduction , their cost of capital has improved significantly.

The most important monitor able for a finance company is the promoter quality and the lending and underwriting practices.

From whatever little communication we had with the promoter at the AGM, he seemed like a sound ethical person. They had little inclination to size the business till a few years ago but in the last couple of years they have decided to scale the business and thus the introduction of renowned investors to lend credibility to their growth story. The Promoter is a well networked person and to date they maintained zero NPA wholesale lending book, which by any stretch of imagination is a very difficult thing to do. The whole sale lending has been there bread and butter for last few years and now they are slowly and steadily scaling the MSME book too.

The only trouble they have had is with the fintech company that they had collaborated with, but they are doing the necessary provisioning for the same very conservatively.
Even though the fintech venture went awry, they were at the time of the AGM still open to Fintech collaborations, since they believe it is the future and they would like to learn the ropes of the trade.

I hope have been able to answer your queries.

(kkarna) #68

Thank you for the detailed explanation sir. I think this really does answer everything for me.

(Vipul Bathwal) #69

Hi Gaurav
What are a few things you would look at when tracking the underwriting procedure for a financial institution? Where can one find details of the underwriting procedure of a particular financial institution and a few pointers to differentiate a good underwriting procedure from a bad one?

(Gaurav152) #70

Hi Vipul

It depends on the segments, the particular NBFC is lending in . First question to ask is whether the lending is Secured or Unsecured.
In cases of unsecured lending, the lending is largely done against Operational Cash flows. So its the Ability of the said NBFC to estimate approximately well the cashflows of the business.
The segments that being lended to are also important, for instance if you are lending in segments such as micro finance, which are politically sensitive, your risk of default is higher and the necessary yields charged by the NBFC are higher to compensate for the risks.
To take the example of CSL, they have two segments wholesale lending and MSME lending.

Now, Wholesale lending is their speciality, with very few manpower resources they were able to lend large sums for short duration to mostly real estate companies, ex at the time of demonitization they had a loan book of 108 crores spread over just about 25 odd clients, thus the operational expenses were very little due to few clients and they could afford to operate out of just a single premises in Karol Bagh. All the loans were personally sanctioned and periodically monitored by the MD and thus their was no NPA problem.( the general consensus is the real estate lending is fraught with risks, but these guys thrived in the segment)… so no single rule applies to everyone and these things are to be monitored over a period of time to assess the lending practices.

But there is a ceiling to what you can do out of a single segment operating out of a single location. Thus they decided to expand into other segments beginning with MSME. Even in MSME they are trying to lending in segments where there is daily cashflow for the entrepreneur like Kirana stores and hospitals etc.
This is a big step for them, as they will have to build a team( they hired top mgmt for the purpose from Satin Creditcare) and then open up new locations. Initially they have set themselves a perimeter of Delhi NCR and the nearby locations as they know the area. but still it will be a challenge since this is something completely new and appropriate systems will have to be established for proper functioning.

Their SME head has been building up those systems by including the underwriting criteria’s based on his experience in their technology platform which was Jaguar at the time.

Its a new challenge, & i believe they will have some teething issues initially but once they get over the initial hiccups and the higher operational costs, they have a good long road ahead of them as the management’s ethical and been providing regular disclosures and investor updates with every quarter.
The presence of renowned investors lends comfort to anyone who is contemplating making an investment.

(bullrun1988) #71

Good result by CSL finance and their future business plant and strategy are good for bright future

(Susindar) #72

EPS did not move either QOQ or YOY. With a small base I find the result to be unimpressive.

(Whipsaw) #73

YoY not comparable as company stopped doing non-core business end of 2016 (which was contributing to additional revenue).

(Susindar) #74

I am not exactly sure when they stopped the other business, but I think it was before December 2016 as December 2015 revenue of Rs15Crs reduced to Dec 16 revenue of just 7 crs which has increased to Rs9crs now. But EPS which is the most important metric have not improved at all.

(bullrun1988) #75

They already announced to stop the trading business. So this EPS is pure from their lending business and in their latest investor presentation one could see the future plan.

(Whipsaw) #76

EPS has not improved a lot as equity base was diluted in Q2.

(Whipsaw) #77

Clarification regarding - Government releases list of 9,500 ‘high-risk’ nonbanking financial companies

(ajaychauhan) #78

Result for Q4 declared, here is the investor presentation, good growth. no. of branches increased to 12, managment walking the talk. however managment highlighted that they are find it difficult to raise debt due to problems with the PSU, any insight in this, does this signify that in future cost of capital may increase?

(ajaychauhan) #79

Summary of CSL finance Con call:

Rajeev mehra Sudhir two key person identified to grow retail franchise

12 branches in 4 states as of now.

CARE BBB rating.

125 crore borrowing as of now.

going ahead focus area will be retail lending target will be 40-50% of book.

focus on building process & system as of now. Using technology for operation efficicency.


  1. what is average loan size in wholsale: 7-8 crore 4-5 crore lap education business.
  2. Maximum is 25 crore to one project.
  3. Last mile funding when 70-80% complete. Only focus on area where consumer demand is there. Regulatory risk and execution risk is not there.
  4. Every month project is monitored.
  5. Mostly NCR focused book.
  6. Lot of Redevoplment is happening, we are into it. Loan tenure is 18-30 months
  7. Education instiution funding only to K12 schools. Average interest is 17-17.5 %.
  8. 1-2% NPA expected in steady state and that too they will be able to recover no big writedown in future since they have secure book.
  9. Target is 50% of the loan in retail lending. 80 crore SME this year. 160 crore in by 2020. Next 3 year 40-50% growth in overall book.
  10. How liability is built: lending from banks and big NBFC first then NCD’s may be opted.
  11. Interest rate scenario challenging due to PSU problem: 50bps increase in lending rate in last few months. Larger PSU and larger private sector banks are similar in lending interest rate.
  12. 5 more branches in 2-3 months in Gujarat. Then focus will be only in 5 states as we get business then we may increase branches.
  13. Building up the business the challange is basically the liability side.
  14. 2004 to 2010 lot of explosion in projects in NCR. Where demand is not their projects were build and subsequently not sold. We do micro level analysis and see if the economic activity is their or not or the apartment cost via a vis demand is their or not. We are last mile funding people so regulatory and execution is minimal. Sometimes the sales are already closed even before we lent money. Speculative activity market is not touced.
  15. We do legal diligence, financial diligence, we see the kind of project, kind of cutomer they sold to etc. Market reputation of borrower.
  16. Collateral is 2-3 times of lending.
  17. Competition: due to cometiton IRR reducted to 17.5% from 19%. Edelweiss and indostar , IIFL are not looking the same set of customer as us. We have much shorter turnaround time, this is our strength. Starting building relation with larger player for group housing and large ticket size.
  18. Leverage level target: 3-4 times
  19. Liability side how we are taking up with lenders to leverage ourselves: trying to build relation with the lender that is all the reply??
  20. Not more than 10-15% of total book in one project.
  21. Only present in few select micro markets of NCR, we may want to go to Jaipur and chandigarh market in future.
  22. SME business: first 6 months not many branches opened, but then as business opportunity were seen good and good response from market. Many branches were opened. In next few months. IRR Is 20% in SME side. Almost Nil unsecure lending.
  23. Leverage: SME 4-5 times, 2-3 times in wholesale.
  24. Con call will be every 6 months.

(adi16in) #80

This has fallen relatively less than other SME stocks. Any major dip is a buying opp ?
I am thinking of adding…

Also, need to see how much impact due to increase in cost of capital.

Higher Oil prices leads to deprecating rupee leads to higher inflation leads to RBI rate hike.